Polymarket sued over Strategy Bitcoin market, months after Kalshi's Khamenei drama

The questions of who gets paid when a prediction market platform decides what counts as a win keep bringing various platforms into New York courtrooms, with the latest being Polymarket. 

In March, Kalshi faced a lawsuit for withholding payouts on its “Ali Khamenei out as Supreme Leader?” market. A New York plaintiff says that the exchange leaned on a “death carveout” to avoid paying. Now Polymarket is defending the same kind of claim.

Two traders have now sued Polymarket in the Supreme Court of the State of New York on July 3, alleging the platform refused to redeem winning shares on a market that asked whether Strategy would sell any Bitcoin by May 31, 2026. 

What do the plaintiffs allege in their filing against Polymaket? 

The disputed contract was part of a recurring series asking whether Strategy, formerly MicroStrategy, would sell any of its Bitcoin by a given date.

The plaintiffs, William Wood and Thomas Bush, say that Strategy did sell, referencing the Bitcoin treasury company’s own regulatory filing as proof. They also stated that Polymarket rewrote the terms after the fact to resolve the contract “No.”  

On June 1, Strategy filed a Form 8-K disclosing that it sold 32 BTC between May 26 and May 31, its first disposal since December 2022. 

The sale was worth around $2.5 million at an average net price of $77,135.

Wood and Bush say the 8-K, which the market named as its primary resolution source, settled the binary question in favor of “Yes.” 

However, according to the complaint, Polymaket posted clarification language that shifted the context from whether Strategy sold Bitcoin by the deadline to whether the sale had been publicly confirmed by then. 

The plaintiffs say that Polymarket overrode the event based on the timing of the disclosure and not the trade, which was what they made the market on.

What clarification did Polymarket make?

Galaxy Research called the episode the highest-stakes test of Polymarket’s resolution stack since last year’s $237 million Zelenskyy suit market. 

According to Galaxy Research, the original text is event-based. The contract resolved “yes” if Strategy sold “any of its Bitcoin” by the deadline, with nothing requiring the sale to be announced in that window. 

When the 8-K hit, “Yes” odds went from around 10% to 80%. One trader reportedly bought about 700,000 Yes shares near 76 cents apiece, treating it as arbitrage.

Polymarket’s team posted that there was no information that Strategy, on-chain data, or credible reporting had confirmed a sale within the market’s timeframe. They added that “confirmation achieved outside of the market’s time frame does not qualify.” 

After that post was made, “Yes” shares fell below a cent. After two disputes and a 48-hour final review, the contract resolved “No” for a third time and settled near 99.7 cents on the No side, per Galaxy. The $301 million-volume market had priced against a confirmed, on-the-record sale.

What demands are the plaintiffs making?

The suit is seeking damages for breach of contract, breaking each of the implied covenant of good faith, unjust enrichment, deceptive business practices and false advertising under New York General Business Law. 

They also called out Polymarket’s marketing, which positions the platform as a place where markets “seek truth,” stating that those claims are misleading if the platform can change resolution standards after an outcome is known. 

The plaintiffs also allege that while settlement runs through the UMA Optimistic Oracle, Polymarket still kept control over drafting rules and issuing clarifications.

Polymarket, like its market rival Kalshi, has been at the receiving end of lawsuits from states and individuals alike. The prediction market platform is reportedly under federal investigation, with the Commodity Futures Trading Commission (CFTC) examining several parts of the business, including allegations that the company paid content creators to post videos showing simulated trades and fabricated winnings, which Polymarket has not publicly addressed.

If you're reading this, you’re already ahead. Stay there with our newsletter.